Not 100%. Before Collins I thought this had about a 10% chance of happening (that's in the framework post from 2019), now I think it's more like 30-40%.
And if Treasury does cancel the seniors I think there is a 100% chance they exercise the warrants. There is absolutely no reason to cancel both when they face such little liability from potential lawsuits.
Yes.
The common shareholders, presumably. But not every decision the board makes is subject to a shareholder vote.
Here are some interesting bits from pages 331-332 of Freddie's 2019 10-K (emphasis added):
That means even outside of conservatorship, Freddie's common shareholders would not have the right to vote on a junior-to-common conversion offer because it would involve a change in the capital structure.
I have seen so many arguments about the rights existing common shareholders have, using generic arguments about voting rights and fiduciary duties. The specific governs the general. Just like the Supreme Court ruled that this conservatorship is different than all others before it, don't assume that common shareholders will have the same rights, etc. that they have with all other companies.
Are you talking about Citi? They didn't have a conservator.
If "convertible" means "able to receive a conversion offer", the answer is evidently 100%.
If "convertible" means "did not have Non-Convertible in its contract", the answer is irrelevant.
What you and I think doesn't matter. It's up to the courts, the plaintiffs, and the government at this point.
Moralizing is a poor idea when it comes to this investment. That's why my Twitter profile says "Righteous indignation is a poor investment thesis." It's okay to be mad as hell, just don't fall into the trap of thinking that such feelings will have any effect on the outcome.
1) Which judge, and in which case? The USCFC can't do this, and none of the other plaintiffs want anything more than an unwinding of the NWS, damages for current junior pref shareholders, and/or the seniors cancelled/converted to common. 2) I agree with this. The senior pref liquidation preference is around $241B right now, but the Presidential Budgets from 2020-2022 have hardly budged in how much they value the seniors at, even as FnF have retained earnings. But a haircut on the seniors means at least partial monetization, i.e. conversion to common. 3) This is the whole premise behind recap and release. That doesn't mean the existing common have to make a bunch of money from here, though. 4) Agreed. Keep in mind that the contributors of this new capital will want the capital raise to be as dilutive as possible because that's to their own direct benefit.
The NWS has been upheld as valid by the Supreme Court. No case at all, not even Kelly or Washington Federal, seeks injunctive relief against the original SPSPAs.
I don't know what you're expecting on this front. The specific claims made by the plaintiffs and the specific authorities of the court involved matter a great deal. Especially when it comes to the USCFC, which can only award money damages. The idea that anything can happen in a court case isn't right.
One point I have made recently, after looking at the numbers, is that FnF's enormous deficit to the lowest possible capital requirement in HERA is only slowly shrinking as they retain earnings. A large capital raise will be required whether it happens now or in 5 years.
Right now it would be $115B if the requirement is lowered to 2.5% (from the current 3%) and the seniors are converted/cancelled, and that only falls by a few billion per year because FnF's balance sheets are expanding so quickly. I have used $100B as the ballpark raise size for a long time, and I haven't seen any numbers yet that would suggest something meaningfully smaller.
In addition, Treasury has no incentive to cancel both the seniors and the warrants. One or the other will become a whole mess of new common shares.
Put bluntly, the numbers tell me that dilution is the only solution.
How so?
If I think that massive dilution is inevitable and that the juniors will outperform the commons from any ratio I have seen in the last few years, why would I have a reason to own the commons?
If the ratio ever hits a certain point, probably around 10:1 on FNMAS:FNMA, I would be willing to switch over to commons. Not with too much, though; I will have enough money to easily retire if the juniors just hit 75% of par, and if the commons defy my expectations and outperform the juniors anyway I will have (at least) 100% of par and won't really care anymore.